WHAT IS 'Adjusted Gross Estate'

BREAKING DOWN 'Adjusted Gross Estate'

Adjusted gross estate is also the value on which estate taxes are levied. For example, assets that are considered to be part of the gross estate would include any property, cash or investments owned by the deceased. However, if a mortgage is owed on the property, the value of the mortgage would be deducted from the value of the estate. Therefore no estate taxes would be calculated on assets that the deceased does not own.

Estates

The word estate can be used to refer to the land and improvements on a large property, often a farm or homestead, or the historic home of a prominent family. However, in financial terms, it refers to everything of value that an individual owns, such as real estate, art collections, antique items, investments, insurance and any other assets and entitlements. It is also used to refer to a person's net worth. Legally, an estate refers to an individual's total assets minus any liabilities.

The value of a personal estate is of particular relevance in two cases: if the individual declares bankruptcy, and if the individual dies. When an individual debtor declares bankruptcy, their estate is assessed to determine which of their debts they can be reasonably expected to pay. Bankruptcy proceedings involve the same rigorous legal assessment of an estate that also occurs upon an individual's death.

Estate planning

Estates are most relevant upon the death of an individual. Estate planning is the act of managing the division and inheritance of a personal estate, and arguably represents the most important financial planning of an individual's life. Generally, an individual draws up a will that explains their intentions for the distribution of their estate upon their death. A person who receives assets through inheritance is called a beneficiary.

Estate distribution

Usually, estates are divided among members of the deceased's family. Inheritance accounts for a major proportion of total wealth in the United States and around the world and is in part responsible for persistent income inequality. Partially as a response to the stagnation of wealth movement as a result of inheritance, most governments require those in line for inheritance to pay an inheritance tax on the estate. This tax can be large, forcing the beneficiary to sell some of the inherited assets in order to pay the tax bill. In the United States, if the majority of an estate is left to a spouse or to a charity, the estate tax is generally lifted.